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AVON: FADED BEAUTY QUEEN

With a constant stream of negative sales results Avon, once a powerhouse of American beauty retail, is seemingly in terminal decline. Can it ever make up all of the ground it has lost?

 

Avon’s latest results, which it posted at the end of April, and the many that have come before them, indicate that the company is broken. The blunt truth is that Avon’s business model is simply no longer relevant to the modern era of retail and the seeming unwillingness of successive management teams to do anything about it has resulted in the company going into a long, steady spiral of decline. It is our considered view that unless radical measures are taken, Avon has no real future in the North American retail landscape.

To put the company’s problems into context, while U.S. consumer expenditure on beauty products rose by 23.8% over the past five years Avon’s own sales dropped by some 46%, or just over $1bn in monetary terms. Such figures clearly indicate that while American consumers have a growing desire for cosmetics and beauty products, fewer and fewer of them are sating this appetite at Avon.

"Avon’s sales dropped by some 46%, or just over $1bn in monetary terms over the past five years"

Avon’s failure to get to grips with its home market, especially over a period when total beauty sales have been increasing, speaks volumes about its inability to reinvent itself as a strong brand with a credible distribution strategy

Part of the problem in the US is that the beauty sector has changed dramatically over recent years and Avon has simply not changed with it. This is partly about the direct selling model, which has become outmoded and where Avon has suffered from a loss of sales representatives over recent years. However, it is also about structural changes in the sector which have seen mass merchants increase their exposure to beauty, especially at the lower-priced end of the market, and the growth of online selling which is now becoming a much more significant sales channel.

As much as distribution is key to Avon’s problems in North America, it is not the only issue the company faces. The brand itself feels tired, saggy and rather old – all things that are an anathema for a beauty name that is supposed to represent youth and vigor. Management needs to reinvigorate the brand as a priority so that the image is more in tune with consumer needs and wants. There is, in our opinion, a good opportunity with the older American consumer who feels youthful and wants to stay that way for longer.

Domestically, Avon has also suffered from the rise of relatively new entrants which have projected a contemporary brand image and have grown through the use of more appropriate distribution channels. Beauty retailer Ulta is a prime example. Since opening in 1990 the firm has grown its network to 765 shops over 46 states, accompanied by a successful e-commerce platform. It its last full financial year it enjoyed growth of over 20% with sales topping $2.6bn (more than double that of Avon’s US operation). It, and others, are simply eating Avon’s metaphorical lunch.

This is a backdrop against which Avon has seemingly stood still. However, the price of this stasis has been the decline of what was once a North American beauty empire. The faded beauty queen now needs to take action or risk fading into obscurity forever.

This piece is taken from our Viewpoints service, which provides subscribers with analysis and opinion of retailers’ results as and when they are released. For more a free trial of this service, click below and complete your details.

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